8/14/13

Figure 1
below compares the evolution of employment-population ratio (EPR) and the number of
36-year-olds in the U.S. What can be so
important in this number? I do not understand. Moreover, why this number is not
important since 2010, as the projection from the number of 21-year-old shows in
Figure 2?I do not say the 36-year-olds drive the EPR, but mere coincidence is rather unlikely.

Figure 1. The employment-population ratio and the number
of 36-year-olds (blue line) between 1950 and 2013.

Figure 2. A
15-year ahead projection (red line) of 36-year-olds
from the number of 21-year-olds.

8/13/13

This is a regular revision. We have been following the evolution of several
price indices of metals since 2008. Our general approach is based on the
presence of long-term sustainable (linear and nonlinear) trends in the evolution
of the CPI and PPI in the United States [1,
2]. The difference
between various components of these indices is not a random one but is rather a
predetermined process. Using these trends, one can predict consumer and
producer price indices for select goods, services and commodities.

Yesterday,
we revisited the index of steel and iron. In this post, we revisit the
trends in the PPI of nonferrous metals. Originally, we reported on this item in
2008 and then
revisited in 2010
and February 2012. The index for non-ferrous metals
(102) shows an example of the absence of sustainable trends in the difference
(see Figure 1). The curve is rather a comb with teeth of varying width.
Although varying, the distance between consecutive troughs is several years at
least.

We predicted that the index of nonferrous metals had to fluctuate with
large amplitude around the PPI and grew at a lower rate than PPI during 2012
and 2013: “Considering the
observation that the rate of growth was approximately 3 points per month since
February 2012 one may expect the level of -10 in approximately 10 to 12 months,
i.e. in September 2013.”

In reality, this difference was at -38.5 in June 2013. There was a short
term fall during the summer of 2012. Therefore, despite there is three months
to grow, the difference is slightly behind the schedule. This delay does not change
the trend, however, and we expect the price of nonferrous metals to fall
through 2016.

The producer price index of aluminum base scrap
has to follow the same trend up, as Figure 2 shows. The
price of aluminum will be decreasing as well.

Figure 1.The evolution of the difference between the PPI and the index of
nonferrous metals from 1985 and June 2013. There are no linear trends in the
difference, but its behavior demonstrates a clear periodic structure with
relatively deep but short troughs, which reflect the fast growth in the PPI for
nonferrous metals.

Figure 2.The evolution of the difference between the PPI and the index of aluminum
base scrap from 1985 and June 2013.

A month ago we presented
a prediction of the labor force participation rate, LFPR, measured by the
Bureau of Labor Statistics. The LFPR (the portion of people in labor force) for
the working age population (16 years of age and over) has been on a long-term
decline since 1995. We predicted the fall down to 59% by 2025. Here we use a
different approximation to project the future evolution of the LFPR. Following
the Kondratiev wave approach (the Russian economist Kondratiev introduced
long-period (50 to 60 years) waves in economic evolution – see Figure 1) we
interpolated the observed LFPR curve by a sinus function with a period of ~70
years. The result is shown in Figure 2. The trough of the model function is
2030 and the bottom rate in 58.5%.

Another interesting feature is shown in
Figure 3. The rate of unemployment also has some long period (~35 years) oscillation in amplitude together with
short-period ( 7 to 11 years) fluctuations. The period of 35 years is a half of
the labor force period. The rate of unemployment is sensitive to the peaks and
inflection points of the labor force curve. One may expect the following unemployment
peak to be higher than in 2010.

Figure 1. The Kondratiev wave

Figure 2. The actual LFPR curve (red) and that predicted by sinus
function with a period of ~70 years.

8/12/13

Eight months ago we revisited
the previously predicted fall in the producer price index of steel and iron in
the fourth quarter of 2012 and formulated the hypothesis on the evolution in
2013: “One
may foresee the difference to fluctuate around the green line in the near
future. The price of iron and steel will likely be declining.” It’s time to revisit our prediction.

Originally, we reported on the difference
between the overall PPI and the PPI of steel and iron in 2008. Then we
revisited the difference in 2010,
February 2012,
and December
2012. We predicted the index of steel and iron to return to the long term
trend, which express a higher rate of growth of the producer price index than
that of steel and iron. Our general approach is based on the presence of long-term
sustainable (linear and nonlinear) trends in the evolution of the CPI and PPI
in the United States [1,
2]. The difference
between various components of these indices is not a random one but is rather a
predetermined process. Using these trends, one can predict consumer and
producer price indices for select goods, services and commodities.

Figure 1 (the upper panel is from December 2012
and the lower one is its updated version with data through June 2013) compares the
difference between the PPI and the index for iron and steel (BLS code 101). The
difference is characterized by the presence of a sharp decline between 2001 and
2008. Between 1985 and 2000, the curve fluctuates around the zero line, i.e.
there was no linear trend in the absolute difference. In 2008, our main
assumption was that the negative trend observed before 2008 should start transforming
into a positive one after 2008. In Figure 1, the (expected) new trend is shown
by green line. This trend suggests that the PPI grows faster than the index of
steel and iron by approximately 2 units of index per year.

Figure 2 (same two panels) demonstrates the
most recent period and confirms that our prediction for 2013 was correct – the
difference has touched the green line. We foresee that the
difference will be growing fluctuating around the green line till 2016. The
price of iron and steel will be declining further before the difference reach
~10 to 20.

Figure 1. The difference of the PPI and the
index of steel and iron updated (lower panel) for the period between November
2012 and June 2013.

Figure 2. Same as in Figure 1 for the period
between January 2005 and June 2013. Green line predicts the evolution of the difference
after 2008. Red circles represent the difference between April 2009 and June
2013.

Americans are getting richer
and richer. The share of Gross Personal Income (GPI) in the U.S. GDP has been
increasing since 1960 (or 1940) as Figure 1 shows. People get a larger portion
of the GDP as personal income and pay more taxes on it. But the overall tax
rate on production and imports (as defined by GDP or Gross Domestic Income) has
not been changing over last seventy years as Figure 2 demonstrates. We may
consider the rise in GPI share as a mere taxation play with a zero gain. Formally,
the GPI takes some more income from GDP but pays for it as if this money is
still the same portion of GDP.

Table 1 shows major
ingredients of the GPI as defined by the Bureau of Economic Analysis.
Some items are decoded into smaller components. Let’s take a look at some
components and find out which part has been the driver of the observed income
growth (see Figure 3). We normalize all components to the measured GDP in order
to illustrate significant changes in proportions over time. “Wage and salaries”
have been on a negative trend since 1970: dropped by ~8%. At the same time, the
increase in “Government social benefits to persons” more than compensated the fall
in wages and salaries. This is redistribution in action. Figure 1 shows also the
ratio of money income estimated by the Census Bureau where “salaries and wages”
as well as “government social benefits to persons” are two major parts. The
change in their proportion does not affect the portion of money income in GDP
since 1960s. This is an important message – the portion of money income in GDP
has not been suffering any decline since the 1960s. The estimates of GPI and
CPS are very similar in this regard. What are the drivers then?

Two principal gainers are “Personal
income receipts on assets” and “Personal current transfer receipts” which added
since 1945 10% and 15% of GDP, respectively. Together, they added 25% of GDP to
the GPI since 1945. What do these names mean?

Personal current transfer receipts. Consists
of income payments to persons for
which no current services are performed and net insurance settlements. It is
the sum of government social benefits and
net current transfer receipts from business.

There are two losers as
well: “Proprietors'
income with inventory valuation and capital consumption adjustments” and “Rental
income of persons with capital consumption adjustment” which lost altogether 10%
of GDP since 1945.

Overall, the GPI gain was 10% of
GDP from the 1940s. This GPI gain was almost fully accumulated by the richest
1% of population by mechanisms external to income definition given by the
Census Bureau.

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